Some homeowners facing foreclosure will be able to remain in their property as renters under a new program announced Thursday by Fannie Mae.
The Deed for Lease Program allows qualified homeowners to sign a lease allowing them to remain in their homes in return for agreeing to transfer ownership of the property to the lender. Rent is capped at 31 percent of the homeowner's gross monthly income.
The program is designed for people who are unable to qualify for foreclosure avoidance programs that would enable them to maintain ownership of the property, such as the Making Home Affordable loan modification program, which is offered by both Fannie Mae and Freddie Mac.
"The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications," said Jay Ryan, vice president of Fannie Mae. "This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities."
Leases are signed for 12 months, with the option of renewing on a month-to-month basis afterward. Freddie Mac initiated a similar program in January that allows former homeowners to stay in their homes on a month-to-month basis.
The policy addresses the fact that, in many former "bubble" markets, home ownership costs are likely to be far higher than market rents for persons who bought a home near the top of the market, according to Dean Baker, co-director of the Center for Economic and Policy Research. Baker, in a written statement responding to the new policy, said that in areas like Washington, DC or Los Angeles, the savings for renting vs. a mortgage payment could be as much as $1,300 to $2,000 a month.
"This is also good policy for neighborhoods that have been hard-hit by foreclosures," Baker said." The Deed for Lease Program will keep the homes occupied rather than being an eyesore and a potential safety hazard."
Baker did criticize the program for providing only limited security, however, saving a longer lease period on the scale or 5-10 years would be preferable to the program's one-year period with the possibility of renewal. However, he did say the program was an important step toward addressing the housing crisis.